Ackman: There Will Be Blood

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Canadian Pacific (CP) is steaming ahead with plans for an acquisition of Norfolk Southern (NSC) despite two initial refutes by the company. Issues surrounding the potential merger have pushed CP’s stock price lower in recent trading also significantly dragging on the portfolio return for Bill Ackman’s Pershing Square, one of the fund’s largest positions.

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In the fourth quarter, CP’s shares have fallen ~8% through Nov. 30, contributing to an overall loss of 9.2% for the Pershing Square portfolio. Despite the short-term losses, CP has generated solid gains over the previous three-year period under Hunter Harrison. Bill Ackman continues to hold a substantial position, owning 9 of the company.

As a long time shareholder and highly involved stakeholder of Canadian Pacific, Ackman has been on the board of directors for the firm since 2012 when he pushed for management reform that resulted in the appointment of Hunter Harrison to CEO and the election of himself to the board. Ackman has been a supporter of the Canadian Pacific Norfolk Southern merger voting in favor of the company’s initial offer on November 18 and further supporting the firm’s counteroffers.

In the Dec. 8 conference call Ackman provided Pershing Square’s endorsement of the deal, with further insight on how Norfolk Southern could benefit from a merger with Canadian Pacific in both the short-term and long-term. Despite an improved offer and increased willingness to negotiate from Canadian Pacific, Norfolk Southern again rejected the buyout.

Canadian Pacific continues to pursue the deal with further details coming out in the Dec. 16 conference call, where Canadian Pacific has been enhanced through the inclusion of a contingent value right that will add increased value for the shareholders of Norfolk Southern.

Bill Ackman will continue to support Canadian Pacific in its efforts to acquire Norfolk Southern and CP will likely be a significant holding in the Pershing Square portfolio for another year or so. Canadian Pacific has substantially improved its operational efficiency and expense management under Hunter Harrison, something that Ackman hopes Harrison can do with the poor performing Norfolk Southern.

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